The IRS has recently agreed to share more information with other federal agencies to crack down on tax evasion that can cost the government hundreds of millions of dollars.
The development marks a significant culture shift for the IRS, which historically has limited interaction with people outside the agency for fear of violating prohibitions against disclosure of taxpayer information.
A memorandum of understanding with the Alcohol and Tobacco Tax and Trade Bureau (TTB) established new procedures for sharing information about whistleblower claims between the two agencies and with informants.
The agency announced it had signed the agreement in December. Bloomberg Tax obtained a copy Thursday through a Freedom of Information Act request.
The deal strikes a similar tone to an agreement the IRS reached with the Environmental Protection Agency several months earlier to crack down on taxpayers who are fraudulently claiming fuel tax credits. Though not specific to the IRS’s whistleblower program, the agreement provides for regular sharing of data between the agencies, including detailed information on specific taxpayers in some cases.
Tax secrecy has taken on an almost religious quality for the agency over the years, said Stephen M. Kohn, a founding partner at Kohn, Kohn & Colapinto LLP. Both agreements illustrate a loosening of constraints to allow the IRS to have essential discussions with other federal agencies when working on enforcement cases, he said.
This is especially good news for whistleblowers because of the growing frequency of multi-agency jurisdiction in their cases, said Kohn, who represents such individuals.
Dean Zerbe of Zerbe, Miller, Fingeret, Frank & Jadav LLP said the agreements indicate an increase in IRS focus on fuel tax credit fraud and alcohol and tobacco excise tax evasion.
“Commonly these tax crimes are connected with other serious crimes, such as money laundering,” he said.
The tax-dodging schemes can often cost the government hundreds of millions of dollars. In July members of a Utah polygamist group pleaded guilty to defrauding the U.S. of $512 million in renewable-fuel tax credits.
Ties to IRS Reform Law
On its own, the agreement with the TTB shows that the IRS is taking steps to implement the whistleblower provisions in the Taxpayer First Act (Pub. L. 116-25), a 2019 law intended to improve agency operations and taxpayer services.
The new law allows the agency to exchange information with whistleblowers to the extent disclosure is necessary to obtain information that isn’t otherwise reasonably available to help the IRS determine how much a taxpayer owes.
The IRS notes this change in the information-sharing clause of its agreement with the TTB.
This provision shows “they’re clearly moving in the direction of sharing,” Kohn said.
Some practitioners have worried the IRS would hesitate to exercise the authority it was granted in the Taxpayer First Act or take a very narrow reading of the provisions.
It will take more time to see just how far the agency is willing to go. “In terms of how much information is ultimately shared, the jury is still out,” Kohn said.
The Taxpayer First Act also requires the Treasury secretary to notify whistleblowers about the status of their cases within 60 days of cases being referred for audit or taxpayers making payments to settle liabilities related to information whistleblowers provided.
Kohn said he has had clients who have already received status updates. In the letters the IRS warns whistleblowers not to publicly disclose the status of their claims because that could violate tax secrecy laws, he said.